California is building fewer homes. The state could get even more expensive

The citywide property transfer tax took effect last year to fund affordable housing and has drawn the ire of the real estate industry.

Though it's known as the "mansion tax," except for rare exceptions it applies to all properties sold for more than $5 million, no matter if they are gas stations, strip malls, apartment buildings or actual mansions. Under the measure, a seller is charged 4% of the sales price for properties sold above $5 million and below $10 million.

At $10 million and above, the tax is 5.5%.

Apartment developers and real estate brokers said additional costs from ULA make it even harder to earn a reasonable profit in what can be a risky business.

That's because when building apartments, developers often sell their finished product, which would probably trigger the ULA tax for any building over 15 units, according to Greg Harris, a real estate broker with Marcus and Millichap. Even developers who hold onto their properties typically need to take out a mortgage on the finished building — and Harris said lenders are willing to give less because they too would need to pay the tax if they foreclose and sell the property.

"ULA is like the last nail in the coffin," said Robert Green, a Los Angeles developer. "It couldn't have come at a worse time."

Many apartment projects got their start under different economic circumstances and have opened in recent years or will soon. That supply should help keep rents down for a while, but not forever, said Richard Green, executive director of the USC Lusk Center for Real Estate.

In two or three years, as fewer apartments are finished "we will see rent start to go up again," he said.

That would be a hit for Californians struggling to find housing in an expensive state where thousands sleep on the streets.

Economic cycles, of course, ebb and flow and construction may rebound.

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